I don’t know if you remember awhile back when it was all about models showing insufficient aggregate demand and calling for major rounds of stimulus, and conservative economists were rounding up empirical data trying to show structural employment problems?

Krueger’s academic track record deals primarily with dealing with micro-scale structural problems in the economy.

I don’t mind Krueger at all. I quite prefer him to his new Keynesian predecessors.

It’s not a debate. The structural side doesn’t have evidence, they have “calibration”, where they write down a toy model, and show that by including unobserved shocks, you can choose the parameters so that you can produce covariances kinda like the real world. It’s like assuming that the rotation of the Earth is random, but picking parameters so that on average each day lasts 24 hours.

a) an academic economist who spent his or her career studying macroeconomic models, and then prescribes trillions in dollars of largely indiscriminate federal spending relying on nebulous “multiplier” justifications,

or

b) an academic economist who has spent his career studying labor market frictions who can prescribe and advise on methods to free up labor movement and stir some private job creation,

the choice is easy.

Although, it appears from the timing of this nomination, Krueger seems to have been brought on as a credible and willing talking head for Obama’s jobs policy, rather than a formulator.

What makes you assume that Kreuger agrees with you extreme-minority position that “freeing up labor markets” is the solution to the current economic problems?

It is exactly by setting up this false choice – by insisting that Kreuger must agree with you because of his past writings, and not support fiscal stimulus – that you have, in fact, set up 1) an interest in structural employment issues and 2) a recognition of the reality that we have a severe demand shortage keeping the economy below capacity, as mutually-exclusive options.

BTW, if you want to talk about “nebulous,” you don’t need to be looking at the well-established, long-understand concept of multiplier, and look instead and your wing-and-a-prayer usage of “free up labor movement and stir some private job creation.”

I’m a big fan of Krueger’s academic work: he is not afraid to take on the economics orthodoxy. He wrote a paper a decade ago that I really like but that I believe is still unpublished that investigated fair trade. nearly all economics argue that fair trade is protectionism in disguise and, according to their theories, therefore just as bad a policy. Krueger looked at votes in Congress on the bill banning imports with child labor, basically saying, “What if Fair Traders actually had sincere moral concerns about the effects of trade on citizens in other countries?” and then showed the the votes for the bill were more likely to come from members of Congress from districts where such concerns would be more prevelant rather than from districts that arehurt economically by the imported products. The economics discipline reacted with a giant shrug and continued to assume that all opposition to trade is motivated by economic self-interest and was, thus, ‘discredited protectionism.’

The paper, and his broader work, also suggest to me that he realizes that economic efficiency isn’t the only value that one can have. He’s a good choice for this job in my opinion.

When economists consider fair trade to be protectionism, you can really see how seriously they take ideas like a minimum wage, mandatory paid vacation, maternity leave, workplace safety laws, the 40 hour workweek, etc, ie, not at all. I’ve never understood how you can think any of these things are a good thing and not be interested in the repercussions of that assumption for the benefits of unrestricted trade. The Chicago school style bias in the economics profession is simply staggering at times, and insane.

Well, I think Krueger’s work suggests he believes free trade to be the right policy for the country, he just isn’t blind to the fact that, even if this is true, this is not the same as saying free trade has no downsides.

In the abstract he writes the following “Based on theory alone it is difficult to generalize about the effects of labor standards on efficiency and equity.” (Emphasis added) I submit it is a rare economist who would bother to include the second part in a paper at all, let alone so prominently in his abstract

I submit you know nothing about economists. The mainstream view is that free trade is efficient for both countries, will decrease inequality between the countries and will increase inequality within them. Of course, the big question in each case is how much.

I submit you know less than I do: the mainstream view is only that it will increase inequality in capital-rich countries as the Stolper-Samuelson Theorem, at least, predicts it should reduce inequality in capital poor countries since trade, according to the theory, should benefit labor, i.e. the poor, and hurt capital, i.e. the rich, in these countries.

My point, though, was most economic models focus only on efficiency concerns. That which maximized a system’s efficiency is deemed important and any concern about distributional concerns is secondary at best. (Note, for instance, that those economists that predict that trade increases domestic inequality view this as a reason not to pursue trade as the equity concern is secondary at best to the efficiency concern.) Krueger seems to be the rare economist who places equity on an equal normative footing with efficiency. From a progressive standpoint, that’s a good thing.

It would be more accurate to say that the Chicago School-ites and Austrians have replaced empirical data and models with a string of prejudices and a bunch of incoherent explanations to tie those prejudices together.

First off, the Chicago school is no more or less likely than any other “liberal” school to rely on models rather than empirical information.

And your statement about Austrians is not correct either. Austrians espouse methodological dualism in describing social behavior. While they don’t eschew empirical results altogether, they believe economics should be “value” free. Basically, they treat economics as a mathematical algorithm since it is impossible to truly understand another subjective mind.

From Hayek:

There are two important consequences which follow from this and
which can here be only briefly stated. The first is that the theories of
the social sciences do not consist of “laws” in the sense of empirical
rules about the behavior of objects definable in physical terms. All
that the theory of the social sciences attempts is to provide a technique
of reasoning which assists us in connecting individual facts, but which,
like logic or mathematics, is not about the facts. It can, therefore, and
this is the second point, never be verified or falsified by reference to
facts. All that we can and must verify is the presence of our assumptions
in the particular case. We have already referred to the special
problems and difficulties which this raises. In this connection a genuine
“question of fact” arises~though one it will often not be possible to
answer with the same certainty as is the case in the natural sciences.
But the theory itself, the mental scheme for the interpretation, can
never be “verified” but only tested for its consistency. It may be irrelevant
because the conditions to which it refers never occur; or it may
prove inadequate because it does not take account of a sufficient number
of conditions. But it can no more be disproved by facts than can
logic or mathematics.

And addressing your dichotomy of assumptions and observations:

But as
members of a class, as similar units about which we can make generalizations,
these models can never possess any properties which we have
not given to them or which do not derive deductively from the assumptions
on which we have built them. Experience can never teach us that
any particular kind of structure has properties which do not follow
from the definition (or the way we construct it). The reason for this
is simply that these wholes or social structures are never given to us as
natural units, are not definite objects given to observation, that we
never deal with the whole of reality but always only with a selection
made with the help of our models.

Sumner is like Milton-Friedman-era Chicago school, and is not at all representative of modern freshwater economics. The models now are much further from reality, and the standards of empirical validation are much lower than they once were. The methodology is very different from the Austrians, or even normal empirical social science.

No, Austrians have correctly predicted all the recessions. Of course they predict a recession every time the real world disagrees with their praxeology, which occurs more or less every second of every day. Thus, they have predicted orders of magnitude more recessions than have occurred. As the saying goes, the Austrians have predicted 37 of the last 4 recessions

Seriously, what the hell are you talking about? First of all, the Chicago school no longer believes in NGDP targeting, because they now believe that money is not important for the business cycle. Sumner is a throw-back in that regard. He seems regularly surprised to discover that the Chicago school left him behind years ago.

Second of all, NGDP targeting right now looks pretty good even to Keynesians, because it would be an improvement over the Fed’s current policy, and because right now the Fed is the only institution in American politics that might undertake stimulus.

Third of all, Keynesianism looks better than ever. In the 80s, Keynesianism looked quite sickly, but we’ve returned to the economic environment where it was first invented (a low-inflation environment with a non-central-bank-induced recession), and lo and behold its predictions have been borne out. In particular, Keynes’ claim that in a low-interest rate environment that monetary policy is like “pushing on a string” looks more prescient than ever.

Your second and third point seem contradictory, and from what I have gleaned, conventional wisdom has shifted to correcting our current recession by pushing on the string by triggering a bout of inflation.

On predictions they have beaten everyone else. the fact that the policy elites have ignored this in favor the the Freshwater and Austrian approaches, whose policies inordinately favor our rentier elites, is totally unconnected to the actual accuracy of their models.

Really, Keynsians have not had the best track record of the last four decades, even compared to the monetarists in Chicago.

Uh, how d’you figure?

Keynesians have a pretty horrible record of getting their policy reccomendations implemented, that’s true enough. But it seems like you mean Keynesianism has a bad track record on the merits.

And that’s simply untrue. Especially over the past twenty years (if you extend the timeline all the way back to 1970 it does look a bit worse, I’ll admit) its models and, more important, its PREDICTIONS, have been spot on.

I don’t know about you, but when a school of thought is consistently saying ‘X is going to happen if we don’t do Y’ and we don’t do Y and then X happens, I will seriously consider that maybe if they’re smart enough to predict X, they’re smart enough that Y is a credible policy choice.

The problem with arguing with Brad here is that, because the Keynesians advocated stimulus, and because we had stimulus, and yet we still have low growth, he has concluded the Keynesians are wrong.

What he is missing is that Keynesians predicted we would have low growth even with the stimulus because the stimulus wasn’t big enough. He is taking the failure of the stimulus to lead to growth as a failure of Keynesianism, even though Keynesianism predicted that failure.

But, yes, Brad spent much last year talking about how dumping all the money into the economy that the stimulus of QEI and II did had to lead to inflation because his monetarist perspective said that that was the only thing that could possibly happen when you put money in the economy. But apparently the lack of inflation does not convince him that his own theories were wrong.

Actually, Brad did not argue that QE would lead to the future, he said it had already led to inflation. Krugman, and anybody else who looks at core inflation, only does so because they, unlike Austrians, do not really care about the poor.

Actually, Brad did not argue that QE would lead to the future, he said it had already led to inflation.

I stand corrected. But, um, that 3.6% increase year-over-year for CPI doesn’t really sound like runaway inflation to me even if you don’t want to look at the 1.8% core inflation rate. (And even that difference is largely due to a huge increase in energy prices, rather than food prices which only went up 4.2% year over year. Why did QE only lead to a massive spike in energy prices and nothing else?)

Why did QE only lead to a massive spike in energy prices and nothing else?)

Not sure. Once people start talking about their extra-different more realer, super-duper truer inflation statistic, as opposed to the misleading government statistic, I always figure it is safe to tune them out, because they are pretty much always cranks.

At that point, my strategy is to simply nod at strategic intervals, while tuning my internal soundtrack to this.

Murc:And that’s simply untrue. Especially over the past twenty years (if you extend the timeline all the way back to 1970 it does look a bit worse, I’ll admit) its models and, more important, its PREDICTIONS, have been spot on.

Examples?

The recession of the 70s and the recovery were not successes for Keynesianism. After a few years of a resurgence of Keynesianism fiscal stimulus from 2008-2010, it is losing ground rapidly again.

elm:The problem with arguing with Brad here is that, because the Keynesians advocated stimulus, and because we had stimulus, and yet we still have low growth, he has concluded the Keynesians are wrong.

I didn’t need the failure of the past stimulus to conclude that Keynesians are wrong. And no level of fiscal stimulus was going to do the trick because the economy needs to be deleveraged, which takes a very long time, and the stimulus is a temporary boosts that wears off and leaves us where we were.

The fact that the growth has fairly consistently undershot projections, and that we are again facing a situation that could be as dire as 2007-2008 is just a nail in the coffin.

But, yes, Brad spent much last year talking about how dumping all the money into the economy that the stimulus of QEI and II did had to lead to inflation because his monetarist perspective said that that was the only thing that could possibly happen when you put money in the economy. But apparently the lack of inflation does not convince him that his own theories were wrong.

No, I admit I was wrong.

Very slow growth prevented any sort of runaway inflation.

I’m torn at this point, being convinced that a little inflation is necessary for a recovery, but I worry seeing an increase in inflation without much job growth.

My second and third points are not in contradiction because the only way to target NGDP is to do unconventional monetary policy. Keynes’ “pushing on a string” refers to conventional monetary policy. It was Keynes, after all, who suggested burying money in mines as a form of stimulus. That would be a form of unconventional monetary policy.

Keynesianism had some trouble explaining stagflation, but the Volcker disinflation works exactly as Keynesians said it would: it would lead to a sharp recession and an increase of unemployment. When was the last time we saw 9% unemployment? 1983, during the Volcker disinflation.

Because you cannot derive much of use from looking at a single isolated stimulus program, and looking at world wide stimulus packages do not present a very supportive trend.

Firstly, the Keynesinas, including Romer, said that the stimulus as enacted was far too small to be effective. Secondly, what freaking “global” stimulus efforts? Nobody else has even tried any, as all of the world’s policy elites are under the benighted influence of your beloved Austerians.

Please explain how fiscal stimulus impedes household deleveraging. Because so help me Cthulhu, if you come back and say that the government needs to deleverage because we all need to tighten our belts, my head will explode.

Firstly, the Keynesinas, including Romer, said that the stimulus as enacted was far too small to be effective. Secondly, what freaking “global” stimulus efforts? Nobody else has even tried any, as all of the world’s policy elites are under the benighted influence of your beloved Austerians.

You know, it seems odd that the CEA members require Congressional approval.

I mean, I’m a pretty huge advocate of Congress taking a robust and, dare I say, intrusive interest in the staffing of the executive branch, being as how the latter exists to do the bidding of the former. But the CEA provides ADVICE. They don’t actually have any real power, unlike, say, Deputy Secretaries and Undersecretaries in the Justice Department, or members of the Fed, or whatnot. Their recommendations have often had a lot of impact, because various White Houses followed their advice, but… this is an advisory body.

It seems kinda equivalent to requiring Senatorial confirmation of the President’s Chief of Staff, or the various Special Advisors.